ASIC Release Director Prosecution Statistics

The Australian Securities and Investments Commission (“ASIC”) have advised that they have successfully prosecuted 75 individuals during the period 1 October 2010 to 31 December 2010. Breaches were aimed at Directors who failed to assist external administrators.

Directors can no longer bury their heads in the sand and ignore the requests for books and records and a Report as to Affairs.

What are the implications for you

The Commissioner of AISC advises that it will be holding those individuals responsible who fail to assist an Administrator or Liquidator in their investigations into the financial affairs of the Company. Total fines issued for the above mentioned breaches of the Corporations Act during the period October 2010 to December 2010 totalled $90,000.

What you need to do

Our Insolvency team consists of Murray Godfrey, Ian Purchas and Darren Vardy, all of whom can offer you expert advice in relation to the duties and obligations of Directors.

If you are concerned and wish to obtain further information please contact our insolvency team on (02) 9231 0889 for a confidential and obligation free consultation.

RMG Partners can offer the expertise you require to avoid a business disaster and help with the recovery of your Company.

Business Growth - Part 2

Last month we recommended all business owners consider three important questions:

1. Where are you now?
2. Where do you want or need to be?
3. How are you going to get there?

This month we are focusing on the second of these questions.

When answering this question many business owners automatically talk in terms of achieving a certain level of revenue, market share or profitability.  While these are valid and important things to consider, we believe your goal setting should take into account your personal or lifestyle objectives as well. Think about non-financial as well as financial goals. This might mean asking yourself some further questions such as why did I start the business/purchase the business in the first place? What is my end game? What is important to me personally (outside of the business) and how will my business help me achieve that? (Or not, as the case may be.)

An example of applying this thinking might be a person who established a business because they believed it would provide them with more flexibility to spend time with their family when compared to a regular corporate role. If a key goal for you is to be able to spend more time with your family and/or friends then this has significant ramifications for how your business is structured and managed.  In considering personal goals and business goals you also need to consider them together and check that they are aligned.

In his book, 7 Habits of Highly Effective People, Steven Covey notes that it is easy to get caught in an activity trap, being busy, working harder at climbing the ladder of success only to find it is leaning against the wrong wall! So if the ladder is against the wrong wall every step we take just gets us more quickly to a place we don’t want to go! That is why his habit number two is “begin with the end in mind”. If you don’t know where you are heading, any road will take you there and you may not enjoy the trip.

There has been significant research over the last 50 years on the value of goal setting. Two of the most prolific researchers and writers on the topic are Gary Latham and Edwin Locke. Some of the benefits of goal setting they identified are:

• It provides a focus and direction for our activities.
• It increases energy and effort, prolongs persistence and encourages searches for strategies to attain the goal/s.
• It can provide meaning to otherwise meaningless/mundane tasks.
• Goal attainment gives us a sense of accomplishment and increases our sense of personal effectiveness.
• Specific, difficult goals consistently lead to better performance than non specific, vague goals or no goals at all.

A couple of comments we would add to this are:

• Share your goals with others – both inside and outside of your business. The more people know the more likely they are going to be able to support and encourage you.
• Have goals that are compelling - goals that excite and inspire you and others around you to do the “hard yards” to achieve them.
• Consider applying the SMART and PURE approach to your goals

1. Specific - Is it clear? The closer the goal the more specific you can be. “Increase profits” is not specific” “Increase profits by 50%” is.
2. Measurable – How will you know you are making progress? What will you see, hear and feel when you have achieved the goal? How often will you measure progress – what key performance indicators do you need to put in place?
3. Achievable and Agreed– Is it realistic but a stretch? Is it agreed with others involved in its achievement?
4. Resourced and Recorded – What will it cost in time and money? Who needs to be involved? What other resources are required? Is it written down – documented goals are more real.
5. Time based – By when do you intend to achieve it?
   
6. Positively Stated – This fixes your attention and focuses your thoughts. If you set a negative goal it fixes your attention on what you don’t want.
7. Understood – Be very clear about the goal and wider consequences it has for you and others. Misunderstandings can kill achievement
8. Relevant – Is this the right goal for you/the business at this time?
9. Ethical – Is the goal legal and consistent with your values?

If you would like assistance with the process of setting goals for yourself and your business, or with setting up appropriate key performance indicators please contact Sonia Gibson on 02 9531 8365. Even if you don’t want our assistance we encourage you to think about your personal and business goals and get clear about what they are.

Cash Economy Letters Encouraging Compliance

According to the Tax Office, its cash economy letter program is encouraging positive compliance behaviour among small business taxpayers.

This financial year, the Tax Office aims to send over 100,000 letters to taxpayers who it believes may be participating in the cash economy. The Tax Office said it will mostly send letters to business operators reporting outside the small business benchmarks for their industry, or to those who, in the Tax Office's view, have reported insufficient business income to meet their expected living expenses.

TIP: The Tax Office has developed small business benchmarks which it uses to compare the performance of a business against other similar businesses that are operating in the same industry. The benchmarks are published on the Tax Office website. The benchmarks can be used by businesses to help assess if they are likely to be selected for an audit or review. If your business is operating outside the relevant benchmark, it may be prudent to review record-keeping practices or to review how your business operates. Please contact our office for any assistance.

Director's Penalty Notice Given When Delivered, Not Posted

In a recent case, the NSW Court of Appeal held that a previous decision of the Court was "clearly wrong" when it held that the 14-day period within which a director is required to take specific action in response to a director's penalty notice ("DPN") ran from the date of its posting. Rather, the Court of Appeal said the period ran from the date of the delivery of the notice.

Please note: This appeal is in relation to the old DPN laws.  Under the new DPN laws the time period is 21 days from the date of the notice.

Tax Office Interest Rates

The Tax Office has advised the general interest charge (GIC) and shortfall interest charge (SIC) rates for the fourth quarter of the 2010–11 income year (ie 1 April 2011 to 30 June 2011):

Rate	Annual (%)	Daily (%)
GIC	11.92	0.03265753
SIC	7.92	0.02169863

Labour Hire Firms and Splitting Income Warning

The Tax Office has recently highlighted its concerns regarding an arrangement where a labour hire firm utilises a discretionary trust for the purpose of splitting the incomes of workers with their spouses (or other related people).

Workers may be entering into these arrangements in an attempt to reduce their tax bills; however, they may not be aware that the arrangement, or parts of it, may be ineffective under the tax law.  Tax Commissioner Michael D'Ascenzo said he was concerned that firms involved in such arrangements may not be withholding the required amount of tax or providing the correct amount of superannuation to their workers.   

TIP: The Commissioner has given anyone who has participated in such arrangements until 30 April 2011 to contact the Tax Office for guidance. Mr D'Ascenzo said taxpayers will be entitled to a reduction in any penalties that might apply if an arrangement is proved to be ineffective.

Calculating Distributable Surplus when Tax Bill Amended

The Tax Office has indicated that it will administer the law in accordance with the findings of a recent Full Federal Court decision.

The case concerned whether income tax and general interest charge (GIC) assessed by an amended assessment are taken into account when calculating a company's net assets and distributable surplus. This calculation is important because the amount of deemed dividend for a loan, payment or debt forgiveness by a company to its shareholder (or associate of the shareholder) is restricted to the company's distributable surplus for an income year.

The crux of the Court's decision is: if a company receives an amended assessment with tax and GIC payable for a previous year, the company's distributable surplus for that income year needs to be recalculated by reducing the surplus by the amount of the tax and GIC payable on the amended assessment – this may result in lower individual tax bills for individuals who receive the deemed dividend.

Watch Out for Scammers

The Commissioner has reminded people to be aware of scam behaviour and to report anything suspicious.

The focus of scams in most instances is to steal personal information. The Tax Office says scammers use phone calls, letters, text messages, emails, bogus websites and even job advertisements to try to obtain financial or other personal details.

Once scammers have this information they can steal an individual's identity and commit fraud. Suspicious behaviour can be reported to the Tax Office confidentially by phoning 1800 060 062.

Eye Glasses Discount Deal Throws New Light on GST Calculation

A retailer of spectacles has won a court case regarding the correct calculation of GST in relation to spectacles it sold to customers under a special promotion.

Broadly, the taxpayer offered its customers spectacle frames at a discount provided they purchase the lenses at full price. The lenses are GST-free, whereas the frames are a taxable supply – together the spectacles are referred to as a "mixed supply". The Full Federal Court agreed with the taxpayer that the discount should only be applied to the frames, and not apportioned between the lenses and the frames as contended by the Commissioner.

TIP: The Court's method may result in a lower amount of GST payable than the method contended by the Commissioner in the case.

Tax Office's Approach to Self-Managed Super Funds Affected by Floods

The Commissioner has given an indication of how the Tax Office will deal with self-managed superannuation funds (SMSFs) that own flood or cyclone-damaged buildings purchased under the strict borrowing rules contained in the superannuation law.
Mr D'Ascenzo noted that SMSFs in these situations may be prevented from making improvements without breaching the rules. However, while the Commissioner does not have the discretion to treat an improvement as a repair, he said the Tax Office will not be seeking to make fine distinctions when having regard to what is available to repair what has been damaged.